Fed slashes interest rates a quarter point, signals slower pace of cuts in 2025

The Federal Reserve on Wednesday slashed its key lending rate by a quarter percentage point for the final time this year — but signaled the pace of cuts will slow in the year ahead as the central bank moves to keep a lid on inflation.

The widely expected quarter-point cut reduced the Federal Reserve’s target rate to between 4.25% and 4.5%.

The Fed, however, hinted at uncertainty around inflation after key figures ticked up the past two months, saying inflation has “made progress” toward its 2% but “remains somewhat elevated.”

“Since earlier in the year, labor market conditions have generally eased, and the unemployment
rate has moved up but remains low,” they added in a press release.

The Fed stressed that moving forward into the new year, the economic outlook remains “uncertain.”

In September, the Fed issued an outsize, half-point interest rate cut – its first cut since 2020 – on “greater confidence” that inflation was calming toward the bank’s 2% goal and that a weak job market posed a greater risk.

The Fed removed its language about “greater confidence” and cut rates again in November by a quarter point.

The third cut comes amid a mixed bag of economic data. Though inflation appeared to be cooling, the Consumer Price Index showed inflation rose 2.7% in November – heating up for the second month in a row and above the 2.6% seen in October, according to the Labor Department.

Consumer spending remained relatively unharmed. Retail sales jumped 0.7% in the same month, beating forecasts of 0.6%, and October’s retail sales figure was revised up to 0.5% from 0.4%, according to the Census Bureau.

However, an unsteady labor market has raised some cause for concern as President-elect Donald Trump has called for the Fed to lower rates at a quicker pace.

Hiring rates and job openings have declined this year, and job growth in crucial sectors like manufacturing, business and professional services has tapered off to a standstill. 

The Fed is still working to deliver the US economy a “soft landing,” in which both inflation and unemployment remain low without a market crash. But the outlook for 2025 is relatively unclear, especially as some economists worry Trump’s mass tariffs and immigration policies could reheat inflation.